Review

INSTRUCTIONS: Select the BEST answer for each question by marking
the circle next to your selection

1.

Given the table below, what is the short-run
profit-maximizing level of output for the firm?

Output

Total revenue

Total cost

1

$ 4

$ 2

2

8

3

3

12

6

4

16

9

5

20

14

A.

2 units

B.

3 units

C.

4 units

D.

5 units

2.

Assume the price of a product sold by a purely
competitive firm is $5. Given the data in the
accompanying table, at what output is total profit
highest in the short run?

Output

Total cost

20

$ 70

25

75

30

85

35

100

40

125

45

155

50

190

A.

20

B.

30

C.

40

D.

50

3.

In which market model would the number of firms be the
fewest?

A.

monopolistic competition

B.

pure competition

C.

pure monopoly

D.

oligopoly

4.

Under which market model are the conditions of entry
into the market easiest?

A.

pure competition

B.

pure monopoly

C.

monopolistic competition

D.

oligopoly

5.

Which idea is inconsistent with pure
competition?

A.

short-run losses

B.

product differentiation

C.

freedom of entry or exit for firms

D.

a large number of buyers and sellers

6.

Which characteristic would best be associated with
pure competition?

A.

few sellers

B.

price taker

C.

nonprice competition

D.

product differentiation

7.

In pure competition, the average revenue of a firm
always equals:

A.

marginal cost.

B.

marginal revenue.

C.

average total cost.

D.

total revenue.

8.

Answer the question based on the table below.

Price

Quantity

TFC

TVC

$ 5

5

$25

$10

5

10

25

20

5

15

25

50

5

20

25

60

At what point on the table would a purely competitive
firm cover all of its costs and earn only normal
profits?

A.

Q = 5

B.

Q = 10

C.

Q = 15

D.

Q = 20

9.

Let us suppose Harry's, a local supplier of chili and
beer, has the following revenue and cost structure:

total revenue$3,000 per week
total variable cost$2,000 per week
total fixed costs$2,000 per week

A.

Harry's should stay open in the long run.

B.

Harry's should shut down in the short
run.

C.

Harry's should stay open in the short
run.

D.

Harry's should shut down in the short run but
reopen in the long run.

10.

R-1 REF 23-45

Refer to the above graph. Which of the output levels
is the profit-maximizing output level for this firm?

A.

Q1

B.

Q2

C.

Q3

D.

Q4

11.

Use the table below to answer the next
question(s) for a purely competitive firm.

Output

Total revenue

Total cost

0

$ 0

$ 50

1

40

74

2

80

94

3

120

117

4

160

142

5

200

172

R-2 REF 23-49 (REF23049)

Refer to the above table. The marginal revenue from
the third unit of output is:

A.

$40.

B.

$50.

C.

$120.

D.

$160.

12.

Use the table below to answer the next
question(s) for a purely competitive firm.

Output

Total revenue

Total cost

0

$ 0

$ 50

1

40

74

2

80

94

3

120

117

4

160

142

5

200

172

R-2 REF 23-49 (REF23049)

Refer to the above table. When the firm produces 3
units of output, it makes an economic:

A.

profit of $3.

B.

loss of $3.

C.

profit of $9.

D.

loss of $9.

13.

Use the table below to answer the next
question(s) for a purely competitive firm.

Output

Total revenue

Total cost

0

$ 0

$ 50

1

40

74

2

80

94

3

120

117

4

160

142

5

200

172

R-2 REF 23-49 (REF23049)

Refer to the above table. The marginal cost of the
third unit of output is:

A.

$20.

B.

$23.

C.

$24.

D.

$25.

14.

Which is true for a purely competitive firm in
short-run equilibrium?

A.

The firm is making only normal profits.

B.

The firm's marginal cost is greater than its
marginal revenue.

C.

The firm's marginal revenue is equal to its
marginal cost.

D.

A decrease in output would lead to a rise in
profits.

15.

R-3 REF 22-68

Using the diagram above, in order to maximize profits,
this firm would produce ____________ which would result
in ____________.

A.

0D units, a loss equal to
ABGH

B.

0E units, a loss equal to
ALFH

C.

0D units, economic profits
equal to BCFG

D.

0E units, economic profits
equal to ABGH

16.

Pure competition produces a socially optimal
allocation of resources in the long run because:

A.

marginal cost equals marginal revenue.

B.

marginal cost equals average total cost.

C.

marginal revenue equals price.

D.

marginal cost equals price.

17.

In long-run equilibrium a purely competitive firm will
operate where price is:

A.

greater than MR but equal to MC and minimum
ATC.

B.

greater than MR and MC, but equal to minimum
ATC.

C.

greater than MC and minimum ATC, but equal to
MR.

D.

equal to MR, MC, and minimum ATC.

18.

Productive efficiency refers to:

A.

cost minimization, where P =
minimum ATC.

B.

production, where P = MC.

C.

maximizing profits by producing where MR =
MC.

D.

setting TR = TC.

19.

R-4 REF 23-130

According to the graphs above, what will happen in the
long run to industry supply and the equilibrium price of
the product?

A.

S will decrease,
P will decrease.

B.

S will increase,
P will decrease.

C.

S will decrease,
P will increase.

D.

S will increase,
P will increase.

20.

If firms enter a purely competitive industry, then in
the long run this change will shift the industry:

A.

demand curve to the left, and the market
price will decrease.

B.

demand curve to the right, and the market
price will increase.

C.

supply curve to the right, and the market
price will decrease.

D.

supply curve to the left, and the market
price will increase.

21.

R-5 REF 23-126

A purely competitive firm, as shown above, will face
what kind of change in profits over the long run,
assuming industry demand is constant?

A.

Profits will increase.

B.

Profits will decrease.

C.

Profits will be unchanged.

D.

Cannot be decided from the information
given.

22.

In the short run, fixed costs for a profitable firm
are:

A.

zero.

B.

negative.

C.

important determinants of the output
level.

D.

irrelevant in determining the optimal level
of output.

23.

R-6 REF 23-97

Which point above is definitely not on a
competitive firm's short-run supply curve?

A.

A

B.

B

C.

C

D.

D

24.

R-7 REF 23-96

This pure competitive firm in the above graph will not
produce unless price equals at least:

A.

$2.

B.

$5.

C.

$7.

D.

$10.

25.

The short-run supply curve for a competitive firm is
the:

A.

entire MC curve.

B.

segment of the MC curve lying below the AVC
curve.

C.

segment of the MC curve lying above the AVC
curve.

D.

segment of the AVC curve lying to the right
of the MC curve.

26.

R-8 REF 23-81

The purely competitive firm above will:

A.

shut down.

B.

produce with short-run losses.

C.

produce with long-run economic profits.

D.

produce with short-run economic profits.

27.

R-9 REF 23-80

The graph above shows a profit-maximizing purely
competitive firm operating in the short run. Which area
in the graph represents the amount the firm can save by
continuing to produce in the short run rather than
closing down immediately?

A.

0beg

B.

0cdg

C.

acdf

D.

abef

28.

R-10 REF 23-79

The graph above represents a profit-maximizing firm
producing under conditions of pure competition. When the
firm is in equilibrium in the short run, its average
fixed cost is:

A.

EH.

B.

DE.

C.

DH.

D.

DB.

29.

A firm should always continue to operate at a loss in
the short run if: